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Sunday, February 05, 2006

Why Buy Gold

'Why buy gold?' is a question often asked by potential gold bullion collectors.

As we know, gold has been steadily rising since last year and has recently experienced a fall and has stablised out currently. However it appears it may be on the rise again and reaching for a new level.

In actual fact, in the long term, gold has proven over the past 200 years to be very stable. The value of gold as a purchasing power, distinct from the purchase power of the US dollar for example, still remains very much the same or better.

If you look back through history you would find that one ounce of pure gold has hardly changed at all. One ounce of pure gold now still purchases the same as it did 200 years ago. The change in paper currency however, due to manipulation and removing the gold backing from currencies world wide, has been dramatic and can be shown by the consumer price index. What originally cost 20 dollars in 1800 cost 216.86 dollars in 2005. Yet one ounce of gold still purchases today what it did 200 years ago. In fact it is tending to purchase more.

It is likely that this scenario will continue and over the next 200 years, inflation, recession etc. will continue as more paper money is printed. Yet the value of the pure gold troy ounce will remain the same in terms of purchasing power.

This is a good reason to purchase gold.

The next question is 'what sort of gold should one buy?'

Out of the possible four types, stocks, exchange traded funds (ETFs), futures and bullion, it is the bullion that will retain its value. Stocks can crash, futures can change wildly and exchange traded funds, although based upon actual stocks, rather like the dollar when it was backed by gold, still has the volatility of trading in a similar way to stocks and futures.

Bullion has a history of remaining stable, whether it be gold bars or gold coins, both have the stability of being actual gold rather than a representation of it. Both have the assurance of retaining their value even when there is a stock market downturn or an economic recession and both have an instant salability at the value of gold at the time of the sale.

Plus, gold coins and gold bars can be easily transported and stored making them the ideal medium to invest value in.

This then, for the collector as well as the investment or even just the hobbyist, is the answer to the question, why buy gold.

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